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Coupa Software Incorporated (NASDAQ:COUP)
Q1 2021 Earnings Call
Jun 8, 2020, 5:00 p.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Good day, ladies and gentlemen, and welcome to the Coupa Software First Quarter Fiscal Year 2021 Earnings Release Conference Call. [Operator Instructions] As a reminder, this call is being recorded.

I would now like to introduce your host for today's conference call, Mr. Steven Horwitz, VP of Investor Relations. Mr. Horwitz, you may begin your conference

Steven Horwitz -- Vice President, Investor Relations

Thank you. Good afternoon and welcome to Coupa Software's first quarter conference call. Joining me today are Rob Bernshteyn, Coupa's CEO; and Todd Ford, Coupa's CFO.

Our remarks today include forward-looking statements about guidance and future results of operations, strategies, market size, products, competitive position and potential growth opportunities. Our actual results may be materially different. Forward-looking statements involve risks, uncertainties and assumptions that are described in our most recently filed 10-Q. These forward-looking statements are based on our beliefs and assumptions today, and we disclaim any obligation to update any forward-looking statements. If this call is replayed after today, the information presented may not contain current or accurate information.

We also present both GAAP and non-GAAP financial measures. A reconciliation of certain of these measures is included in today's earnings release, which you can find on our Investor Relations website. A replay of this call will also be available. Unless otherwise stated, growth comparisons are against the same period of the prior year.

With that, I will now turn the call over to Rob.

Rob Bernshteyn -- Chief Executive Officer

Thank you, Steven. Hello, everyone, and thank you for joining us. Let me start my remarks by vehemently acknowledging the racial intolerance and ensuing violence taking place across America. My colleagues and I stand committed to support of all that seek to eradicate racism, hatred and injustice wherever it may rear its ugly head. We acknowledge that we've got to start making changes as a society and as people, and we are committed to the cause.

On a separate and key topic, let me also say that our thoughts and prayers go out to all those affected by the global coronavirus pandemic. We thank all the brave individuals putting themselves in harm's way to help others.

Now, as you'd expect, when the pandemic broke, the safety of our colleagues have to come first, and that continues to be the case. Being a highly distributed global company, before the shelter-in-place orders were put into effect, made for a relatively smooth transition to the work-from-home model for our tech-savvy organization. Our video conferencing usage has nearly doubled to more than three hours a day on average per colleague as we stay connected and continue pushing the value creation that our community has come to expect from Coupa. We remain connected, focused and in positive spirits as we continue to do what we do best.

At the face of these difficult times, we are leading with courage and conviction, key elements of the culture upon which we've been building Coupa for over a decade. Additionally, our core values of ensuring customer success, focusing on results and striving for excellence have continued to guide us. Our values are the binding mechanism behind our ability to navigate this crisis together as colleagues, while maximizing the value of the service we deliver for our community. Regardless of weather conditions, my team and I continue to play on the field every single day.

From a business perspective, our strong balance sheet and disciplined financial model allow us to invest in the business with resiliency and long-term growth in mind. In Q1, given the richness of talent in the market, we hired new employees at a pace that was relatively in line with recent quarters. As we had been for the last 45 quarters, we will continue to be thoughtful and meticulous with respect to hiring and making investments in our business. Despite the unsettling environment we all experience, we had Coupa deliver strong results in Q1, including record revenue of $119 million.

During the quarter, we saw a combination of some deals being put on pause, some deals closing with normal cadence, and even some deals being pulled in. In all cases, we believe it to be our responsibility to help these customers focus both on long-term business success and on near-term business resiliency, and we're proud to play a role.

To that end, our marketing team quickly focused on messaging around the business resiliency that our comprehensive Coupa platform provides. They emphasize visibility, control and agility as well as evaluating risk and fortifying strength in the supply chain. Our methods of communicating with our community were optimized. From a prospect perspective, for example, we moved our advertising from airports to digital banners on targeted television programs. From a customer perspective, we fine-tuned our approach with greater local and industry-focused virtual engagement. More broadly, I also personally called upon the procurement function at all companies to step up and lead in this time of uncertainty, and many have.

Business and management and the role of procurement is perhaps more important now in this unprecedented time than it has ever been. An example of one of our customers demonstrating this leadership is Alejandro Basterrechea, Head of Procurement Operations at Zalando, Europe's largest online fashion retailer. Using Coupa, Alejandro was able to reconfigure Zalando's approval chains in less than one hour to help immediately contain and control costs. Being able to reconfigure approval chains in less than an hour is a great example of accelerated, or the letter A in Coupa. Controlling expenditures was a theme across our customer community, and we are proud to play our part.

We ended Q1 with cumulative spending amounts that are now being approximately $1.8 trillion. In addition to acting quickly to control spend, our customers have looked to Coupa to help mitigate supply risks and build business resiliency. Acquia has relied on Coupa's strategic sourcing to source 100% of their global transportation and catalog needs. Their head of strategic sourcing optimization highlighted that a single tender could have more than 60 million elements, having one powerful AI-driven platform allows users to focus on the task at hand and not the complexity of scenarios.

Customers have also work to accelerate their payment solutions. A longtime Coupa customer who recently implemented Coupa Pay shared with me personally that they are transitioning to Coupa Pay as quickly as possible to help manage payments for their suppliers because temporary bank solutions are frustrating and archaic. Coupa's new and innovative thinking with Pay is driving real ROI by automating and digitizing the payments process and helping control cash outflow.

During the quarter, we also heard from customers who are appreciative of their newfound ability to work efficiently in a remote environment using Coupa. Maria Clara Mejia from Grupo BIOS, a leading agri-business company in Colombia told us, and I quote, with our accounting and purchasing teams working from home, we were able to complete the month-end close with no delays for the spend categories that were currently managed to Coupa. We saw much more chaos in categories that were not. We're excited to help our existing and new customers drive more and more spend through our platform.

As I mentioned in the past, our vast systems integrator network is a key element to our success. Now with more than 3,500 trained consultants around the world, our partners work closely with our customer success team during the quarter to ensure that projects were being completed on schedule. Despite the more difficult working conditions, 90% of our current implementations saw no impact to their schedules whatsoever. And those that were impacted were projects in the most heavily affected industries. Those projects are now getting back on track as well.

So let's talk about just some of these recent go-lives, highlighting many of the different value propositions that were unlocked for our customers. Speed and simplicity were demonstrated in Fieldwood Energy's Coupa Go-Live. Fieldwood, one of the largest producers of oil and gas in the Gulf of Mexico, went live with Coupa BSM in less than six months. Interestingly, with some of their operations team on rigs in the Gulf of Mexico, virtual training and the simplicity of our user-centric platform were simply a necessity. A great example of the letter U in Coupa.

Super-quick ROI was on display with the Energy Development Corporation's Go-Live. A leading geothermal energy producer in the Philippines, EDC rolled out Coupa Sourcing following a fast track two-week implementation. After this quick implementation, EDC was able to complete its first two sourcing events within five days of being live. The ROI realized here within just three short weeks is simply fantastic.

Staged value delivery is also commonly seen with Coupa. For example, ERGO, one of the major insurance groups across Europe, accelerated their launch date by three months to run an urgent sourcing event with more than 100 suppliers. Then, ERGO went live with the Coupa BSM platform across source-to-contract with additional rollout plan during 2020. This demonstrates how new Coupa community members can realize immediate value while still implementing a more comprehensive solution in tandem.

As with many of our customers during Q1, Osotspa, Thailand's largest energy drink maker, showed nimbleness in their implementation process. They were in the final phase of a go-live when Thailand announced its lockdown due to the coronavirus. Rather than extending the project time line, the implementation teams instantly turned to virtual work and still hit their March Go-Live target date.

Another example of agility is Molex, a manufacturer of electronic components and interconnection systems, went live with Coupa remotely in both China and the US. With the Coupa, Molex quickly standardized processes globally for greater efficiency across Procure to Pay.

Konica Minolta Business Systems Asia, a hardware and digital solutions technology company, went live with Coupa Business Spend Management as well. Before Coupa, manual paper and spreadsheet-based purchasing processes had controlling -- made controlling spend difficult. With Coupa, Konica Minolta has complete and total authority over their spend, enabling preapprovals to ensure on-contract spend compliance.

Speed, fast ROI, staged value, standardization of processes, agility, spend control and many more key value proportions have always been a hallmark of the Coupa community. That spirit is not limited to any one of our offerings.

As just one additional example, NEC Corporation of America, a provider of IT and communication solutions, is now live on Coupa Contingent Workforce. They now have a single system of record for contract labor management that is being used by all hiring managers companywide with an integrated end-to-end process from requisition to release. The value we offer our growing community is vast and impervious. In fact, the current environment further solidifies the urgency of our value proposition and the resiliency it offers. Whether done remotely or in person, we continue to get the job done with our growing community.

Let's move on to new customers. As always, I want to welcome some of these new customers who have decided to make business spend management a priority and have now joined our Coupa community. To highlight just a few, in Q1, we partnered with Accent Therapeutics, AutoScout24, Black Diamond Therapeutics, Carta, CentralSquare Technologies, Clearway Energy, Clorox, CODA Biotherapeutics, New Horizons Australia, The Howard Hughes Corporation, The Salvation Army, TomTom, University of North Carolina, Vroom.com, Workiva and others. Many of these new customers are already well under way with their go-live projects.

Now let's talk about some other updates. As many of you know, our vision has always been to provide the most comprehensive business spend management solution the world has ever seen as delineated by the letter C in Coupa. We've designed the platform to allow our customers to begin getting value in any area where they want to start. As a result, we have seen an increase in demand in some of our most currently, relevant power applications offering almost immediate value. These include Coupa Advantage, risk assess, strategic sourcing and source together.

This increase in demand has been both from new customers and the installed base. A great example of immediate ROI comes with our new Coupa Advantage Express offering. This is the community effect in full display. With Coupa Advantage Express, preset and pre-negotiated discounted prices with trusted suppliers are available at the very moment of the go-live. Hard dollar savings are available for all, right from the start, and customers are taking full advantage.

That same community dynamic comes into play with customers who are paying close attention to supplier risk mitigation using Coupa Risk Assess. Bank of Montreal was already using Coupa Risk Assess and reached out to share appreciation for its value. Results from coronavirus risk assessments of their suppliers and third parties through the community have enabled them to easily respond to the inquiries on pandemic preparedness risk.

With widespread disruptions in manufacturing and supply, we knew the Strategic Sourcing and Source Together could help match suppliers and buyers through our open platform, the letter O in Coupa. Over the past few months, our team has engaged with hundreds of buyers and sellers with approximately 75 customers executing millions of dollars worth of orders. As an example, we work with a major airline that needed to secure personal protective equipment for their employees and was unable to do so through their traditional supplier network. By tapping into the Coupa community, they were able to identify and vet alternative sources. As one outcome, more than 1 million masks were delivered to the airline, along with hundreds of thousands to two other companies that joined the Source Together event.

In fact, in Q1, we decided to reach beyond our existing customer community given the unprecedented time of need. Though not a Coupa customer, Caitlin Delaney, a VP at Oak Street Health, reached out saying that she needed help sourcing personal protective equipment. Not having a robust procurement organization, Oak Street relied on Coupa to recommend suppliers, and Caitlin has now ordered and received hundreds of thousands of dollars of supplies for Oak Street. Caitlin said, and I quote, "When we needed help, Coupa really came through for us. They really helped us and our patients, and we have recommended Coupa to other healthcare suppliers in our network."

We're always so thankful of these types of truthful endorsements. For us, it's all about our developing Coupa community and how we can all be smarter together. Our developing community is at the very core of our platform and our continually expanding value proposition. The more insights we have, the greater the value of the prescriptions we can deliver, as denoted by the P in Coupa.

One example of value delivered can be seen at CAP COM Federal Credit Union. Using prescriptions provided based on community intelligence, CAP COM identified that they process significantly fewer invoices electronically than their peers in their sub-industry and company size. With Coupa's help, CAP COM identified major suppliers that were already on the Coupa supplier portal electronically invoicing other Coupa customers. Having converted these suppliers to electronic processing, CAP COM can now operate more quickly as well as safely.

To continue the dialogue around more electronic forms of commerce, let's move on to Coupa Pay. I'm excited to share that we continue to gain traction globally with Accelerate, virtual cards and invoice payments and have also recently added BNP Paribas as a partner. We now support approximately 100 customers using Coupa Pay, with about one-half of them being new customers and one-half coming from our installed base. In fact, we have a number of customers who urgently needed Coupa Pay recently. Paper checks are still highly prevalent, as many of you know. Coupa-enabled customers in our community to rapidly implement digital check programs. This eliminated the need for many of them to go into their offices and handle paper checks.

Let's move on to the Coupa Business Spend Index, or BSI, a leading indicator of economic growth based on analyzing hundreds of billions of dollars in aggregated and anonymized business spend. Today, we published the Q2 2020 Coupa BSI. Before getting into the results, I'd like to once again reiterate that the BSI data is not necessarily indicative of the trends we're seeing in Coupa's business. While the Q1 BSI was already showcasing indications of a slowing economy, not surprisingly the Q2 BSI indicates the businesses have grown increasingly concerned about their outlook. Sector data indicates that spend sentiment across most industry verticals has fallen sharply as a result of the global pandemic with some industries more impacted than others. For example, spend sentiment in the retail sector has dropped significantly below trend as consumers obey stay at home orders and are forced to shop online. Additionally spend sentiment in the manufacturing sector continues to be significantly below trend, likely given the dependence on materials from China, as well as production stoppages worldwide. The one exception has been health and life sciences as spend sentiment in that sector continues to operate above trend. We will continue to closely monitor these trends and make the data available on spendindex.com.

Now I started this call off with a discussion of how our core values drive everything we do here at Coupa. So as has become our custom, I want to take a moment to recognize a few of our colleagues that have made outstanding contributions, which clearly demonstrate these values. Let me start with Keaton Miller, who was recently recognized by his peers for embodying our number one value of ensuring customer success. His ability to pragmatically assess any situation and have a meaningful conversation with the customer about value is simply amazing. He instills a spirit of partnership and trust leading by example to those around him.

Next, I'd like to call out Ariane Lindblom, who is recognized for focusing on results. Ariane is a strategic thinker, but is always rolling up her sleeves to get the job done. Her ability to balance broader vision with practical hands-on work is integral to our success. Finally, J.R. Robertson epitomizes striving for excellence. J.R. has been with us for nearly 10 years having taking on a host of key roles at Coupa. Rarely do you come across someone who is so professional, so committed, and so steadfast in their conviction. Congratulations and thank you, Keaton, Ariane, and J.R.

So in conclusion, rain or shine, with courage and conviction, and grounded in our values, we continue to support our colleagues, deliver for our customers, and create a future that generates incredible value for all our stakeholders.

With that, let me now hand it over to our Chief Financial Officer, Todd Ford, who will review our Q1 financial results and provide our outlook second quarter and updated fiscal 2021. Todd?

Todd Ford -- Chief Financial Officer

Thanks Rob, and good afternoon everyone. These are certainly unprecedented times. As I discuss our Q1 results and guidance for Q2 in fiscal '21, I want to give you additional context regarding the key drivers of our business and our approach to managing through the COVID-19 pandemic.

At the highest level. Our strategy remains exactly the same. We manage our business to one, 30% plus annual revenue growth; two, disciplined sales and marketing investment; and three, demonstrating leverage in our model as it relates to operating and cash flow margins as we continue to grow. As ever, we remained focused on resilience and long-term market leadership. Now let's dig into the details.

Total revenue for Q1 grew 47% year-over-year to $119 million. Subscription revenue for Q1 was $106 million, up 45% compared to Q1 of last year, comprising 89% of total revenue. Professional services and other revenue was $13 million, which includes the benefit of a few strategic direct services engagements. Let me highlight a few items that are reflected in Q1 subscription revenue. One, from a linearity perspective, new bookings were back-end loaded with April being stronger than March; two, renewals were strong consistent with prior quarters; and 3, there were two fewer days in Q1 versus Q4, resulting in less steady state subscription revenue being recognized this quarter compared to Q4.

In Q1, we also delivered strong professional services and other revenue, demonstrating our ability to remotely implement and take new customers live as Rob mentioned in his remarks. Calculated billings for Q1 were $102 million, up from $75 million in Q1 of last year, representing a 36% year-over-year increase. For the trailing 12 months, calculated billings were $496 million, up from $340 million in the previous trailing 12-month period, representing a 46% increase. Total deferred revenue at the end of Q1 was $244 million, up from $176 million at the end of Q1 last year, a year-over-year increase of 39%.

Let's now turn to margins and results of operations. Driven by our strong revenue performance and scale in our financial model, our first quarter non-GAAP gross margin was 73.6%. For operating expenses, consistent with our long-term strategy and disciplined approach, we continue to assertively higher across the business, with a particular focus on sales and engineering. Although we continue to make these strategic investments in Q1 we were again able to show scale and leverage in our operating margin and free cash flow results. We delivered non-GAAP operating income of $14.9 million as well as non-GAAP net income of $14.5 million or $0.20 per share on 71.7 million diluted shares.

Similarly, cash flow results were strong for the quarter. GAAP operating cash flows for Q1 were $15.4 million and adjusted free cash flows were $22.4 million or 19% of total revenues. As a reminder, we define adjusted free cash flows as operating cash flows less purchases of property and equipment plus repayment of convertible senior notes attributable to debt discount. Q1 was our third straight quarter with more than $20 million of adjusted free cash flows. On a trailing 12-month basis, GAAP operating cash flows were $64.8 million or 15% of total revenue and adjusted free cash flows were $62.5 million, also 15% of total revenues. Cash at quarter end was $706 million, down from $767 million last quarter. The decrease was driven by $92 million paid to settle the principal of early redemptions received for our 2023 convertible notes.

Now let's turn to guidance. Before we delve into specific numbers, let me provide some high level commentary. Our business remains as agile as ever. Regardless of what the broader circumstances in the market may be, we will continue to execute our strategy and position Coupa to win the BSM market and drive long-term stockholder value for quarters and years to come.

With respect to guidance, in particular, our current operating thesis is that the macroeconomic environment will remain challenging for at least Q2 and Q3 with things beginning to open up more broadly in Q4. We entered Q2 with a stronger pipeline than the same time last year, both on a gross basis and in terms of what we would consider to be later stage qualified pipeline. Not surprisingly, many of our customers and prospects are now operating with significant headwinds, especially those in industries highly affected by the pandemic, making it difficult to predict the timing of when deals will close. The second quarter and full year 2021 guidance we are providing today incorporates our current assumptions with respect to the macroeconomic environment based on information available to us at this time around new business, renewals, timing of collections, and various other inputs. Variations from these assumptions may cause our results to differ.

With this as the backdrop, we expect total Q2 revenue of $118 million to $119 million, this includes subscription revenue of $107 million to $108 million and professional services revenue of approximately $11 million. We expect Q2 non-GAAP gross margin of 70% to 71%and non-GAAP income from operations of $5.0 million to $6.8 million. The result is a non-GAAP net income per share of $0.06 to $0.08 on approximately 73.5 million weighted average diluted shares for the quarter. On the opex side, please note that our sales and marketing expenses will not see the spike in Q2, typically associated with our annual Inspire event. Instead, we will bring our BSM community of customers, prospects, partners and employees together through a series of highly curated virtual and physical experiences over the course of the second half of this year. Furthermore after generating in excess of $20 million of adjusted free cash flows in each of the past three quarters, we expect Q2 adjusted free cash flows to be approximately breakeven, similar to the seasonality we saw last year.

When updating your models, please remember that separate from the impact of COVID-19, we have two events from Q2 of last year that impact the year-over-year compare for Q2 billings this year. One is noted last quarter, some of the new customer billings, which were billed in Q2 of last year were billed Q1 of this year for the terms of the contract and two, the Exari acquisition that we completed in Q2 of last year. We estimate that the impact of Q2 billings from these two events is approximately $15 million.

For the fiscal year ending January 31, 2021, we expect total revenues of $489 million to $491 million. This includes subscription revenue of $442 million to $444 million and professional services and other revenue of approximately $47 million. We expect non-GAAP gross margin for the year of approximately 71%. We also expect non-GAAP operating income from the year of approximately $28 million to $30 million, with non-GAAP earnings per share of approximately $0.36 to $0.38 based upon an estimated 73 million weighted average diluted shares for the year.

Although as we noted last quarter, our customer collections at the end of fiscal '20 significantly exceeded our expectations, creating a difficult year-over-year compare for us this year. We still expect adjusted free cash flows to be up year-over-year on an absolute dollar basis.

To conclude, we are clearly living in uncertain times as we focus on supporting our employees and ensuring that all members of the Coupa community emerge from this pandemic stronger. We will continue to leverage our disciplined financial approach, the strength of our balance sheet and a focus on business resilience, to position ourselves to emerge stronger when the current crisis subsides and continue to extend our market leadership position.

Now we would be happy to take your questions. Operator?

Questions and Answers:

Operator

Thank you Mr. Ford. [Operator Instructions] And your first question comes from the line of Stan Zlotsky with Morgan Stanley.

Stan Zlotsky -- Morgan Stanley & Co. LLC -- Analyst

Perfect. Thank you so much guys. And congratulations and a very nice quarter given the challenging backdrop. So from my end, you noted there were some deals that were -- that got pulled into the quarter and some that pushed out, are there some commonalities between the kind of deals that you're seeing being pulled in and some that are maybe getting pushed out. And the ones that are getting pushed out, is it fair to characterize them as maybe closing toward the Q4 part of the year or would you expect them to start closing earlier as you start to maybe see a little bit of normalization in Q2 and Q3? And I have a quick follow-up.

Rob Bernshteyn -- Chief Executive Officer

Sure. Thanks Stan. I wouldn't say there's anything statistically significant to those that were slightly more pulled in, those that were just slightly pulled out. I think it's very contact specific, individual person specific, situation specific, but when we think of the pipeline itself, it continues to be very, very robust and continues to build and we continue to see deals moving through all stages of our pipeline. And of course as you would expect our job would be to get these customers on to our platform as soon as humanly possible. I mean, the value that is delivering for our existing community and some of the newer customers that have been to be able to go live even through this very difficult first quarter is real, it's measurable, it's highly referenceable and undeniable. So our goal is to get these customers onto our platform as soon as possible.

Stan Zlotsky -- Morgan Stanley & Co. LLC -- Analyst

Got it. And then on the Coupa Pay, firstly, thank you for giving us the -- at least ballpark for the 100 customers that are now on Coupa Pay, when you look across these customers which products are you seeing the most traction with within the Coupa Pay portfolio? And how are you thinking about from seeing these 100 customers now come up on the further refinements to the Coupa Pay modernization? Thank you.

Rob Bernshteyn -- Chief Executive Officer

Yes, sure. And I appreciate that. What's interesting about Pay is that we're seeing it get absorbed by our customer community, a little bit I would say in tandem with the releases of those three offerings that we took GA. So, accelerate without question is a critical component that allows folks to really sort out cash flow from both the buy side and sell side, virtual credit -- credit cards continues to be a strong player, but we're seeing very real traction now with invoice payments, which has just a whole host of components that streamline a business process, gets you out of paper, gets you out of our incumbent solutions that is very, very inflexible. So we're seeing nice adoption across the board and we're seeing it interestingly with new customers almost equally as much as we're seeing with our existing customer base that's adopting it. So really, really promising.

Stan Zlotsky -- Morgan Stanley & Co. LLC -- Analyst

Thank you.

Operator

Your next question comes the line of Brian Peterson with Raymond James.

Brian Peterson -- Raymond James & Associates, Inc. -- Analyst

Thanks, I appreciate you taking the question. So, Rob, first one for you. I'm just curious on the value as a service narrative, when you're talking to customers particularly over the last few months, has that changed at all, because obviously the ROI proposition has always been there, but the idea of analytics or changing business processes, I'm just curious what is your customer conversations been like in terms of the value as a service?

Rob Bernshteyn -- Chief Executive Officer

Well, thanks for that question. I mean the customer conversations have been just really humbling and rewarding on behalf of all my colleagues here, right. I mean we've had companies tell us that they simply wouldn't have been able to get the spend control they needed to dynamically adjust approvals in a moment's notice. It's just simply would not have had that agility. Others have commented on the visibility that the platform offer them. Others commented on the ability to easily hot swap from one supplier to another that they identified risk with many complemented on the pace of their deployments. I mean we took so many customers live in Q1 and they were amazed about our ability to do that virtually in concert with our systems integrator partners. Many commented on the openness of the platform, which I was actually a little bit surprised about, but they were commenting on how they didn't have to concern themselves with certain integration point breaking as they have with older incumbent solutions. So a lot of really, really strong praise from the -- from the customer community and because of that and because obviously the referenceability of that it bodes well for the continued growth of our community from a prospect perspective as well.

Brian Peterson -- Raymond James & Associates, Inc. -- Analyst

Thanks, Rob. And maybe just one more, I know historically, the focus has been much more on acquiring new logo, just where you are in the adoption curve and the opportunity, but any update on selling back into the installed base, it sounds like that was a pretty strong quarter in that regard?

Rob Bernshteyn -- Chief Executive Officer

Yeah, I appreciate the question. You know, we actually have not changed our approach in any way. We continue to be following very much the same hunter mindset. But what was interesting during the quarters, we had an increase in inbound demand for some of those applications that offer the fastest return given the current situation. So things like the ability to quickly assess supplier risk through our risk assess application, the ability to dynamically run a sourcing event, whether it'd be -- they source together or their own. The ability to very -- very quickly get their arms around the contingent workforce that they're using and onboard folks on a temp basis rather than full-time. So it was very, very interesting way to add recurring revenue for us with a much lower cost of customer acquisition relatively, but at the same time drive greater, greater value as a service to our customers, which is obviously what we're all about.

Brian Peterson -- Raymond James & Associates, Inc. -- Analyst

Good to hear. Thanks Rob.

Operator

[Operator Instructions] Your next question comes from the line of Siti Panigrahi with Mizuho.

Siti Panigrahi -- Mizuho -- Analyst

Thanks for taking my question. Very impressive to see 100 Coupa Pay customers. Could you talk about the traction in the three [Phonetic] module, mainly the invoice payment modules? And also remind us the pricing model of this three different Coupa Pay?

And also, you talked about 20% upside in average deal size that includes Coupa Pay. So, did you see the similar trend this quarter?

Rob Bernshteyn -- Chief Executive Officer

Well, there are a number of questions there. I'm not sure I'm going to remember them all in the right order. But let me address, I think, the spirit and the theme of it, which is really around Coupa Pay, our approach to that market and the pricing component there. Just to give you a sense for Coupa in our history, we always want to be on the same side of the table with our customers. We see our customers as our partners, so we never want to be in a situation where we are, in some way, disincenting them from using our platform. So, our pricing model is a combination of a subscription that's often based on kind of transaction volume we'd anticipate as well as some kind of per-transaction fee. And the balance between those two is somewhat drawn -- somewhat concluded based on our interactions with the customer and their willingness to embrace greater upfront fee versus a transactional fee. So that's our general approach to it.

As I shared in the earlier response to a question asked about Pay, all three of the modules are gaining traction in the order that we've released them, and invoice payments in particular taking on a very, very significant business value proposition is really starting to get some meaningful traction. And as we've done with every one of our modules, we iterate 3 times a year in our releases, so we continue to learn from the way our customers are using these products and then make them more and more robust with every release. It's one of the reasons we continue to invest in R&D and continue to invest in our distribution.

Todd Ford -- Chief Financial Officer

And then, with respect to total pricing, at the highest level, our ARR per average deal continued to go up meaningfully quarter-on-quarter, which really shows the value of the platform. And then, with respect to Coupa Pay in particular, yes, the average deal sizes with Coupa Pay were greater than 20% than those without.

Siti Panigrahi -- Mizuho -- Analyst

Thank you.

Operator

And your next question comes from the line of Raimo Lenschow with Barclays.

Raimo Lenschow -- Barclays -- Analyst

Hey. Congratulations from me as well. Question for you guys. If you look out for like -- obviously everyone thinks the world is getting better. But if you think about you're running the business with -- you see from the BSI index that things are still kind of tough out there, if you look like what are the metrics that you guys are looking at to kind of stay in tune with the client and stay in tune with the client spending, can you talk a little bit of the two of that please? Thank you.

Rob Bernshteyn -- Chief Executive Officer

Well, that's a phenomenal question but not one I could give justice to with a quick answer. We look at just about every possible operational metric that we can get arms around the company, and we combine that with our own executive judgment and sense for the leading indicators that are around that. So everything from pipeline development to movement through the pipe to speed of adoption, and Go-Live by our customers to the value generated from the offerings with our installed base, I mean, everything you could possibly imagine.

So, rest assured that we're not short of metrics here. It's having those metrics every quarter, going to them in great detail and then applying our greatest sense and judgment that gives us the ability to make those quarterly decisions around head count expansion, investment, global reach, and all the things that we do at this company.

Raimo Lenschow -- Barclays -- Analyst

Perfect. Thank you. Well done.

Operator

And your next question comes from the line of Koji Ikeda with Oppenheimer.

Koji Ikeda -- Oppenheimer -- Analyst

Thanks for taking my questions and a great quarter. I just had another question here on Pay, with the -- thank you for the disclosure on the 100 customers there. And I wanted to dig in a little bit more on those half of those customers, those Pay customers that were new to the company?

So, I would assume, is the right way to think about it, does that imply that dual deployment of the core procurement platform and Pay at the same time and how does the current environment change the conversation of dual deployment? And then, I guess just thinking about those 100 Pay customers, overall how penetrated is Pay within those organizations?

Rob Bernshteyn -- Chief Executive Officer

Well, Pay is one of our transactional areas, right, so procurement, expenses, invoicing and Pay. And what we're amazed to see is how much of Pay is being done in very arcane ways today, everything from the paper checks that I described to by-weekly batch payment runs with an inability to change parameters using a whole host of different rails that aren't exactly optimized for the payments process.

So, in many cases, we'll go into a new customer interaction where Pay will actually be the driver for the broader business spend management opportunity. And in many cases, it's just one of the components. So, again, we want to be able to drive as much value as quickly as possible to every one of our customers, and we are flexible enough to be in with any of the transactional components as well as any of the power applications to do so.

Koji Ikeda -- Oppenheimer -- Analyst

Got it. Thank you. And one quick follow-up for Todd. I might have missed it, but could you talk about the dollar-based expansion rate in the quarter? Thank you for taking my questions.

Todd Ford -- Chief Financial Officer

So, on dollar-based expansion rate, historically the range has been $110 million to $112 million. We did note last quarter that it was well above that range and it was above that range again this quarter. And that's without including Coupa Pay still not ready to put out a new range just given the volatility of the market and things that are happening. But in general, yes, we are seeing the dollar-based expansion rate go up. And with existing customers', things such as Strategic Sourcing, and the Risk Aware products are very important in today's environment. So we've seen more customers digging in with those products. But in general, the dollar-based expansion rate continues to trend strongly

Koji Ikeda -- Oppenheimer -- Analyst

Thanks, Todd. Thanks for taking my questions. Appreciate it.

Operator

Your next question comes from the line of Steve Koenig with Wedbush Securities.

Steve Koenig -- Wedbush Securities -- Analyst

Hi, gentlemen. Thanks for taking my question. I appreciate the fact that you guys guide prudently and you had a great quarter, and you're looking your guidance. But I'm wondering, can you -- if you think about what your view was three months ago versus now that the pandemic is raging and what changed, can you give us any color with respect to the impact on revenue, whether expansion, renewals or new logos, like which of those have been most impacted? And certainly on billings, any changes to billings terms here, customers not paying, ability to collect? Thanks very much.

Rob Bernshteyn -- Chief Executive Officer

And then, we'll let Todd talk about some of the financial measures. But let me just tell you thematically, it's absolutely amazing to see companies in many of the conversations I'm having really understand the priority of what we do in a way that we hadn't seen in the past. We always knew that driving value is a service, that driving operational efficiency, that -- our focus on prudent spending, focus on mitigating supplier risk, all of that was very, very important. But much of that is really emerging right in front of them as a much broader priority for just procurement or even CFOs, it's at the CEO level.

And so, we're really excited to be partnering with some of these forward thinking organizations that not only want to address the current situation but really want to set themselves up for the next three years, five years, 10 years so they can help their company emerge as one that is not only highly operationally efficient, thrifty, and thoughtful, but one that's set up for the long-term growth. And much of that begins to play out in our business, which obviously Todd speak to from a financial metrics perspective.

Todd Ford -- Chief Financial Officer

Yeah. So there's...

Rob Bernshteyn -- Chief Executive Officer

Go ahead. Thanks, Rob.

Todd Ford -- Chief Financial Officer

...a lot of moving parts to your question there. With respect to revenue, the single biggest impact to revenue for us has been Coupa TravelSaver, i.e. the Yapta acquisition. And if you remember, back in Q1, we expected $1 million to $2 million of revenue from that business. And if you look at how we're thinking about that for the rest of the year, we're basically assuming virtually no revenue contribution from that product line. And to the extent that that travel and leisure market picks up for corporate businesses, that would be upside to our revenue. And if you look at the annual revenue guide, it was obviously a bit lower than our -- a beat for Q1, and that's really the primary driver for that.

With respect to billings and payment terms, really haven't seen any difference there yet. And we have had a few customers' impacted industries asked us for extended payment terms, only a handful of those have actually gotten to my level. So, in certain circumstances, as good corporate citizens for companies you all know, we've extended payment terms 60 days, 90 days, and maybe one case that was larger than that. But so far so good, and we'll continue to monitor that as time plays out.

And then, from a collections perspective, obviously Q1 was very strong for us and it really speaks to the value of our platform as well. We're mission critical, people need it, they see the value. And so, they're willing to pay. So there have been a couple of exceptions, but actually that was much better than what I originally thought it would be.

Steve Koenig -- Wedbush Securities -- Analyst

Cool. Thanks, guys.

Operator

Your next question comes from line of Daniel Jester with Citi.

Daniel Jester -- Citigroup -- Analyst

Great. Thank you for taking my question. I was just wondering, given all the sematic talks that you had in your prepared remarks about risk mitigation and company is very focused on their supply chain, I'm wondering as you talk to just renewing existing customers, how focused are they on direct procurement versus indirect procurement? And how much of an opportunity is it for you to get even further into direct procurement? Thanks.

Rob Bernshteyn -- Chief Executive Officer

Well, it's a great question. I mean, the conversations I had during the quarter both were absolutely right as there's a real focus on controlling all elements of the spend direct and indirect, and of course we supported them. On the direct side, the whole host of used cases from complex invoice management electronically to some of those complex sourcing events imaginable to supplier risk management to inventory management of direct. So absolutely that is an opportunity to continue to expand upon what the existing customer base. And frankly, in our platform, for the growing customer base, we're going to be taking on in the months, quarters and years to come.

Daniel Jester -- Citigroup -- Analyst

Great. Thank you.

Operator

Your next question comes from the line of Pat Walravens with JMP Securities.

Pat Walravens -- JMP Securities -- Analyst

Oh, great. Thank you, and let me add my congratulations. Hey, folks. Todd, if I look, the midpoint of your guidance works out -- for Q2 works up about 25% growth in my model, and then Q3 and Q4 goes sort of 19%, 18%, and I guess you could cut that different ways. But if I look at that, is that -- is the difference between sort of those guided growth rate and the 30% a good way to think about the impact of what the economy is like right now or should we be thinking about something else?

Todd Ford -- Chief Financial Officer

It's always been a bottoms-up approach with us with respect to guidance. And the -- if you look at the underlying drivers, right, if you look at professional services revenue, that's been falling. We have a big pipeline of professional services. We've shown the ability to bring customers live remotely. Renewal rates tend to be strong. The new business is obviously a key driver. And if you look at our sales pipeline from a growth in later stage, it's higher than ever. But there is the impact of COVID, and from -- when you look at the rest of the year, although we have a lot of positive underlying indicators, it's really hard to project what that's going to look like in the back half of the year.

If you look at the revenue guidance for -- whether it's a quarter or an annual basis, the vast majority, well above 95% of that is already contracted, even if you assume a conservative renewal rate, a dollar-based expansion rate of 100%. So, as we get more clarity throughout the rest of the year, as we've done in the past, we'll continue to update guidance accordingly. But in the near-term, it's -- we're trying to basically project what we see.

Pat Walravens -- JMP Securities -- Analyst

That's great. Thank you. And then, on the billings, you gave the color about the sort of $15 million headwind. I mean, if we -- taking that out, would billings growth be about the same as the revenue growth you guided to? I'm just trying to figure out where we'd put that.

Rob Bernshteyn -- Chief Executive Officer

Yeah. So, Q2, for the reasons we just discussed, is by far the most difficult quarter from a calculated billings perspective. Once again, professional services, strong; renewal rates, strong. We've even looked at renewals going out 18 months and really don't see any risk. The unknown obviously is bankruptcy, right? So while we don't see any bankruptcy risk in today's environment, I wouldn't be surprised if something happened. And once again, I don't see anything. We've looked at all of our customers.

And then, when you kind of roll that all together from a calculated billings perspective, I believe the trailing 12-month calculated billings will be greater than 33% exiting Q2. But the order of magnitude of how much higher it will be, given the current macroeconomic environment, is very difficult to ascertain. And then also, we have...

Pat Walravens -- JMP Securities -- Analyst

Okay.

Rob Bernshteyn -- Chief Executive Officer

...the year-over impact from Exari as well because we acquired Exari in Q2 of last year.

Pat Walravens -- JMP Securities -- Analyst

Yeah. I got that. Okay, great. Thank you.

Operator

Your next question comes from the line of Joseph Vafi with Canaccord.

Joseph Vafi -- Canaccord Genuity -- Analyst

Hey, guys. Good afternoon. Thanks for taking my call. On Pay once again, I was wondering if you could provide kind of any update on new payment rails that have been added, trends in payment volume on existing customers and how much take-rate-based revenue or take-rate-based -- yeah, really take-rate-based revenue is being derived from the Pay module at this point? Thanks.

Rob Bernshteyn -- Chief Executive Officer

Sure. So, let me just give a little bit of background on the depth of functionality that is managed around invoice payments themselves, because there, we're taking on a very significant set of capabilities and rails. They're traditionally being done either on paper manually or part of a very arcane older system.

So, in order to get heavy volume in take-rate transactions, we need to be able to accommodate some of those key capabilities at a level that is at least the 80/20 that a customer would expect. So you would anticipate deployments to happen -- first of all, sales to happen first, deployments to happen second, and then transaction volume to accelerate, in that order. All three of those measures, all three of those phases of the life cycle interacting with our customers are taking place. And in conversations with those customers in a presales process, we're finding a right mix that's good for us as well as fair for the customer themselves to balance what component of the offering will be captured in the subscription value that's derived and what component will be captured via the take rate. And we will continue to flex those and modulate those so we get the mix just right as we look to scale this well beyond 100 customers to thousands of customers obviously in the quarters and years to come.

Joseph Vafi -- Canaccord Genuity -- Analyst

Thanks very much.

Operator

And your next question comes from the line of Michael Turrin with Wells Fargo.

Michael Turrin -- Wells Fargo Securities -- Analyst

Thanks. Good afternoon. We've seen other companies in software have a more difficult time sustaining pace in billings and/or free cash flow trajectory here more recently. Is there any additional commentary you can add around how you're able to deliver upside on both sides of the equation here in this environment in Q1? And then on the expectation for free cash flow closer to breakeven in Q2, maybe how much of that is related to general seasonal patterns you've seen versus incremental impacts from the current environment? Thanks.

Todd Ford -- Chief Financial Officer

Yeah. So, I think from a financial model perspective, one, we've always been very disciplined in how we deploy new capital, how we look at revenue, billings, how we guide. We typically always try to guide from a perspective of working our way up from the worst case scenario possible and really focused on execution. I've always said this is an execution play. And if we don't deliver the midterm and long-term targets that we've committed that I would likely get on a call like this, and say, we just simply didn't execute.

And the pace of execution here, even though it's been in a COVID environment, has been stunning. And Rob mentioned a number of minutes on Zoom and that type of thing, but we're engaged. We have productivity metrics on the sell side, so we can see how many emails are being sent, how many meetings are being sent, and just the quality of the pipeline. So, I think it's a combination of being financially disciplined, the way we execute. And then, with respect to free cash flow that you were mentioning, three straight quarters are greater than $20 million.

If you look at the free cash flows generated in Q2 of last year with the low point of the year, Q1 is typically the lowest quarter from a calculated billings perspective. And then that bleeds into Q2 collections, etc. So, I think it's just been very disciplined and thoughtful across all of those dimensions.

Michael Turrin -- Wells Fargo Securities -- Analyst

That's helpful. Thanks. Nice start to the year.

Operator

And your next question comes from line of Alex Zukin with RBC Capital Markets.

Alex Zukin -- RBC Capital Markets -- Analyst

Yeah, thanks guys for taking the question. Congrats on deal with adversity in a stellar way. I guess, maybe just two quick ones from me. Rob, maybe the first one, I wanted to kind of go a little deeper on a comment you made in the script about reaching out beyond your current customers where you were able to actually leverage your supplier network, even for non-customers, when you think about the Coupa vision, the product direction in a post COVID world, can you talk about what you see as initiatives that might accelerate or that you might accelerate or defer to solve some of these new pain points for customers?

Rob Bernshteyn -- Chief Executive Officer

Sure, sure. Thank you Alex. I appreciate the question. You know, one of the things that sometimes gets lost in the prepared remarks or even in these conversations is the power of this incredible community that we're building. I will just give you one example of the kinds of things our team is working on. Many companies are going to start to reenter or beginning to reenter and virtually all of them need certain indirect supplies to make that happen. So we're actually negotiating product bundles by industry, to have certain -- using our source together capabilities. So that customers of all sizes within our community can leverage centralized contracts for everything they need to reenter. You can imagine non-healthcare organizations needing surgical masks and hand sanitizers, disinfecting wipes, gloves, N95 mask, sublimated mask, all these things and creating packages for healthcare organizations that will include things like IR thermometers and isolation gowns and things of that nature. So we're taking the power of this community and driving incredible volumes to suppliers that are able to deliver for that community at fair pricing that's delivered rapidly. So they could be very, very agile with their business. And for me, that's an incredible power that goes well beyond any feature or function we can ever build in our platform. It's the power of the community that we're developing. And that's really just one example of the tip of the iceberg of what this community is able to do and we'll be able to do in the future.

Alex Zukin -- RBC Capital Markets -- Analyst

That's super powerful. And maybe, I don't know Todd or Rob, I'm not going to ask you, you have conservatism in your guidance because it appears to be that you're fairly, fairly good there, but I want to ask you a maybe a more high level question, which is you see these COVID trend, you see these sales cycles, you talked about pipelines being great, talked about engagement levels being great, May being better than April, or April being better to March, presumably May be better than April, at what point -- I guess at what productivity capacity, do you feel like you are operating now from a go-to-market perspective. And talk about if you start trend lining these normalization rate, where do we -- when do we get back to a normal productive capacity at the current trend line?

Rob Bernshteyn -- Chief Executive Officer

Yeah, there's a lot baked into that question Alex. I mean you touched on, what we saw in, I would say middle of March, the very beginning of April, which was this acute moment where people were almost caught in the headlights, if you will, but after that, a real quick reemergence to the priorities and us being a very key priorities of that. One of our three pillars for the business is sales and market marketing efficiency. And so we look at that every quarter and we want to make sure that we're both well equipped for the needs -- our goals around distribution, but at the same time not overstepping our opportunity in a way that some companies do. So we're going to continue to manage that very, very carefully every quarter and calibrate and we built in a whole host of different scenario analysis that we've done to make sure that we continue to thread that needle carefully. We feel like we're in a really good position now, not only for the medium term, but really for the longer term to capitalize on not only winning this business spend management, you know multi 10s of billion dollar market opportunity, but delivering for customers in a way that they would never want to leave and would only want to add more and more capabilities on our platform.

Todd Ford -- Chief Financial Officer

And Alex and from an engagement perspective and if you look at the hiring we did in Q1, we brought on quite a few quota carrying sales reps. And that's really with an eye toward the back half of the year and going into next year to make sure that we are ideally positioned to be resilient and exit this crisis in full on mode and the part where we are -- or I would get a little bit more nervous is if you don't see these people being able to get up to speed, a culture rated and start to build pipeline. And then the other interesting dynamic is when deals are pushing, right, we've done a lot of analytics around this. Most of them are pushing for weeks and months, not several quarters. So we do believe that when the world comes back to quote unquote normal, we will be very well positioned and you did have as Rob mentioned early on, especially in North America, the deer in the headlights, OK, I'm triage, I got to get my head around things and Europe being a little bit better positioned because planning for Brexit etc. And we're seeing that already, right. Europe is coming back online faster as well, and North America is kind of getting through the Triage and you see some glimmers of hope right like things appear to be opening up, but we all know that that could change on a dime as well. So we're trying to be balanced, but yet really position ourselves for resilience so that when the market is there we've got the feet on the street, we've got the pipeline in that we kind of catch up from where we left off when things turn.

Operator

Your next question comes from the line of Terry Tillman with SunTrust Robinson Humphrey.

Terry Tillman -- SunTrust Robinson Humphrey -- Analyst

Yeah, I really appreciate you all fitting me in and congrats from me as well. I'll just make it simple and just one question. With the global SIs, they got to figure out how to keep their people busy and working so they don't have to cut jobs. And you got to look at what's discretionary and what's going to really be a strong ROI, it seems like you are all really set up well for even more global SI engagement. So what I would love to hear Rob is just are you getting more of a seat at the table with the global SIs or is there any kind of KPIs or anything to talk about maybe help, amid all this uncertainty, maybe there is greater engagement. Just would love any perspective on that. Thank you.

Rob Bernshteyn -- Chief Executive Officer

Your perspective a spot on. I mean, the level of interest from the systems integrator community, especially the top firms to wrap services around what we're offering has been really exceptional, it is a real uptick that we saw in Q1 around that, because the prior year of what we're offering is not only exceptionally high in ROI, but requires a mindset shift among so much of the core market from being paper-based and not having the controls and visibility to their spending. So we saw very nice uptick there, very encouraging uptick there in the first quarter and we'd anticipate that to continue to build upon absolutely.

Operator

And your last question comes from the line of Peter Levine with Evercore.

Peter Levine -- Evercore ISI -- Analyst

Great. Thanks for squeezing me in here. Maybe just for the customers deferring decisions, I mean obviously I don't think that's a surprise to anyone at this point, but is that just a matter of business confidence or some sort of -- you just sort of kind of managing budgets. And can you talk a little bit about whether or not that conversation is different if you're discussing procurement, travel expense or even payment or is that just pretty similar across the group?

Rob Bernshteyn -- Chief Executive Officer

Thematically when that arose and the times that it did, it was largely because of this acute phase that I described, where folks are figuring out how to get online, how to navigate the health and safety of their employees, how to think through their own, for public company their own quarterly kind of metrics and things of that nature. There was just simply this acute phase, but early signs of emergence from that acute phase as well as early data that we saw in April suggests that our value proposition is very much at the very top of the list when that reemergence happens and that's also seen in the growth of our pipeline at various stages as well as the closures that we saw as soon as that acute phase sort of subsided.

Operator

And at this time there are no further questions. [Operator Closing Remarks]

Duration: 67 minutes

Call participants:

Steven Horwitz -- Vice President, Investor Relations

Rob Bernshteyn -- Chief Executive Officer

Todd Ford -- Chief Financial Officer

Stan Zlotsky -- Morgan Stanley & Co. LLC -- Analyst

Brian Peterson -- Raymond James & Associates, Inc. -- Analyst

Siti Panigrahi -- Mizuho -- Analyst

Raimo Lenschow -- Barclays -- Analyst

Koji Ikeda -- Oppenheimer -- Analyst

Steve Koenig -- Wedbush Securities -- Analyst

Daniel Jester -- Citigroup -- Analyst

Pat Walravens -- JMP Securities -- Analyst

Joseph Vafi -- Canaccord Genuity -- Analyst

Michael Turrin -- Wells Fargo Securities -- Analyst

Alex Zukin -- RBC Capital Markets -- Analyst

Terry Tillman -- SunTrust Robinson Humphrey -- Analyst

Peter Levine -- Evercore ISI -- Analyst

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